Travel and subsistence

This week’s Budget

The pre-Budget media train has been in full motion over the weekend with genuine personal service companies (PSCs) all being wrongly tarred with the same tax avoiders brush. Trading through a personal service company is perfectly legal and above board. That is the correct starting point.

Surely if that premise was untrue all of these heinous crimes would have lead to fines or custodial sentences, or perhaps just changes to the legislation to catch the baddies. But that hasn’t happened.

FCSA is rightly pleading with Osborne to ”get his facts right before tarnishing all contractors with the same brush ahead of Wednesday’s Budget”. Contractors and freelancers are a valuable part of the UK’s workforce and those operating legitimately should not be punished as government look to clampdown on abusers.

Intouch supports tightening of the rules to make the system fair and just, but are singing from the same hymn sheet as FCSA in urging government not to attach genuinely independent workers who bring their highly valuable knowledge and experience into companies when they’re needed.

What’s likely to come up on Wednesday for contractors?

Contractors are already expected to deal with changes to the way dividends and expenses are taxed. Here’s what will be of interest on Wednesday lunchtime:

Dividends – the current tax credits will go and the new dividend tax kicks in on 6th April. Our Dividend ebrief tells you more about the new rules, what they mean and what you can do to make the most of your dividends.

Travel and subsistence expenses – any contractors who are under the supervision, direction or control (SDC) of their client will lose tax relief of their T&S expenses. This is likely to hit Umbrella workers the hardest as well as any contractors operating within IR35.

Stamp duty on second homes – any contractors with a second home will have to pay a 3% Stamp Duty surcharge.

IR35 – silence was golden in the Autumn Statement in which IR35 was put to one side. But we’re expecting it to raise it’s head again now Spring is here. The discussion document issued last year will most likely progress to consultation and we already know to expect an improved Employment Status Indicator Tool by the end of this year.

Income Tax threshold – it’s expected that the Personal Allowance will rise to £11,000. We also anticipate seeing the higher rate income tax threshold rise, probably to £43,000, as government continue to edge towards their longer term target of £50,000.

Company liquidations – changes likely to come into effect on 6th April mean any contractor looking to wind up their company but then continue contracting will have their distributions chargeable to Income Tax, rather than Capital Gains Tax. In short, this is a huge blow to the plans many contractors had to close down a company without perhaps retiring for good.

Other speculation

It’s more than likely that the Chancellor will continue with his focus on tax avoidance and clamping down on those who use marketed schemes to avoid paying their fair share.

Rumours are being leaked about Osborne reverting back to the old limit of 40p additional income tax rate band. It’s also unclear what the Chancellor will announce about pensions. While talk of major changes to the system of pension tax relief is making its way around the rumour mill, it seems more likely that there will be a reduction in benefits currently enjoyed by savers. If this proves true on Wednesday then now doesn’t seem like the right time to further reform pensions.

48 hours to go

With the Budget less than 48 hours away, the speculation will keep going round until the Red Box is opened in the House of Commons. We will be watching with interest and unpicking exactly what Osborne’s announcements mean for contractors. Make sure you’re in the know. Keep an eye out for our Budget special blog.

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Are you a contractor worried about changes to tax relief on travel and subsistence (T&S)? Concerned that you will lose out financially? The Autumn Statement announced that changes were on the way that could affect contractors/ freelancers. Today we’ve found out more and share what the changes in the law mean for Umbrella and personal service company (PSC) contractors.

Intouch is at the forefront of tax for contractors and Managing Director Paul Gough, with over 30 years experience in accounting and tax, has completed an initial analysis find out what the draft Finance Bill means to you.

In summary

PSCs who are truly independent and are not “disguised employees” (outside IR35) can still claim tax relief on T&S after April 2016.

This will not be the case for many Umbrella workers.

The relevant detail

Today’s publication of the draft Finance Bill 2016 sets out the detailed legislation and now makes these changes clearer:

If you are currently an Umbrella worker under the (or right of) supervision, direction or control (SDC) of the client or any party related to them then you cannot claim tax relief on T&S expenses from April 2016.

You are automatically deemed to be subject to SDC by HMRC; the Umbrella must determine otherwise with the help of the client.

Clients and agencies will have to provide information to help Umbrellas decide on the existence of SDC.

The only exception is where all services are conducted at the client’s home (domestic workers for instance).

If your employer (the Umbrella) gets this decision wrong then the Umbrella or its directors may have to pay any underpaid tax.

If your Umbrella does not pay the tax or the client or agency provide poor information they too may be on the line.

If you are an Umbrella worker not under SDC then you can claim T&S relief after 6 April 2016 (but not at source) unless new untested models work when wages are paid.

If you are a PSC (Limited Company contractor) and are outside of IR35 then it’s business as usual.

PSC contractors can claim T&S relief on travel to the client, and where they are outside of IR35.

If you are outside of IR35 then the SDC test is not applied – happy days!

HMRC has listened to stakeholders have made it clear with this draft legislation that PSC contractors working outside IR35 are indeed “self employed” and not the same as Umbrella workers.

They do enjoy different risks and rewards and as a consequence can claim tax relief for T&S costs.

So this is good news for anyone already running their own Limited Company or thinking about going Limited. For any Umbrella workers, it’s a good idea to start asking questions and consider your options so you aren’t forced into unwanted working practices come April 2016. In our next blog we’ll unpick what the Finance Bill 2016 means for contractors and give you ideas on actions you should consider.

Does today’s Finance Bill leave you more confident in contracting, or are you a worried Umbrella worker? Share with us how today’s announcements will affect you.

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Claiming mileage as an independent contractor

As a contractor, you’ll undoubtedly already be claiming expenses against your tax bill. However, one of the most common areas of confusion is that of mileage. Many contractors may wonder whether they would be better off purchasing a company car (when trading as a Limited Company) or whether claiming the standard mileage allowance is in fact the most attractive option. On top of that, questions often arise as to how much can be claimed, up to what threshold and on what journeys.

With this in mind, here’s our own look at claiming mileage as a contractor, outlining everything which we believe you might need to know.

Company car vs mileage allowance payments

Limited Company contractors do have the ability to purchase a company car should they wish. From the outset, a company car might look like the best option. However when looked at over a number of years and when fuel, road tax, insurance and maintenance are taken into account, this isn’t always the case.

Many contractors make the mistake of looking at the tax savings across the first year which, when buying a company car, will always be greater due to the tax relief associated with the initial capital allowance on the purchase. In addition, many may not consider that if any personal journeys are made, this will be seen as a taxable benefit and the savings you might have made on initial corporation tax when purchasing the vehicle are suddenly diminished.

The company will also be liable to pay Class 1A National Insurance (NI) on the cost of providing a car, just as it would if you had been paid the extra salary and purchased a car with that directly.

Whilst there’s always exceptions, in most cases, once the tax and NI is taken into account over a longer period, especially if personal journeys are undertaken, using your own car and claiming mileage usually works out to be not only the simpler but also the most financially appealing option.

How much can you claim?

The current rates* per business mile as outlined by HMRC are as follows:

*Correct at time of publication 29/10/15

To calculate the Approved Mileage Allowance Payments (AMAPs) over a given period, it is simply a case of multiplying the total number of business miles by the rate per mile for the vehicle. This can be used across more than one vehicle and should be calculated together as one allowance.

As a working example, if 12,000 miles were travelled each year in a car, the mileage allowance would be £5,000, worked out as:

10,000 miles at 45p per mile (£4,500)

2,000 miles at 25p per mile (£500)

It is also worth noting that additional expense of up to 5p per mile can be claimed when travelling with more than one person in the car. This is of course only when the passenger is also travelling for business purposes.

What journeys can mileage be claimed for?

When the purpose of travel is solely for business, expenses can be claimed back by the contractor as an ‘approved amount’. As would be expected, not all journeys can be claimed for and it is important to be able to correctly distinguish between ‘business’ and ‘private’ miles.

HMRC define ‘business’ travel as, “journeys forming part of an employee’s employment duties (such as journeys between appointments by a service engineer or to external meetings) and journeys related to an employee’s attendance at a temporary workplace.”

As such, for the majority of contractors, it is the latter which is most important given that a workplace is usually temporary for the duration of a contract. HMRC do not count travel between home and a fixed, (permanent place of work) as business travel, unless you have to travel to another location ‘outside the norm’ of your permanent place of work.

It is also important when claiming business mileage that you keep note of the following information which may be required by HMRC in order to qualify as an ‘approved amount’:

The date of the journey

The start and end locations

The reason for the journey and the parties involved

The number of miles

The name of any passengers

The mileage calculations

If you want any further information on claiming business mileage as a contractor, you can find this in our ‘What is a reasonable mileage claim for a contractor?’ blog. Alternatively, contact one of our team on 01202 375 562, to see how Intouch Accounting can help keep you compliant and maximise your income.

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Don’t let the house of horrors spook you!

Forget The Shining, American Psycho or The Exorcist, sometimes the worries that contracting can cause can be far scarier! But fear not, Intouch Accounting are here to help guide you through each and every process, without the sleepless nights, or worrying if the Taxman is hiding under your bed…

Let’s take a look at some of the main concerns Limited Company contractors have and see why they’re not so scary after all:

IR35

Whether you’re a seasoned contractor or just starting out, IR35 should always be a consideration when starting a new contract. Whilst you should never let it stop you from contracting, it is something you need to understand and have respect for. Our clients don’t need to worry, as our monthly all inclusive service fee of £98 +VAT includes unlimited IR35 contract risk assessments.

Don’t let the fear of ‘what if’ stop you from contracting! In our ebrief: IR35 – the proposed changes we outline exactly what IR35 is, how it could affect you and the proposed changes for April 2016.

Claiming expenses

Do you worry about claiming for business expenses, for fear of not remaining compliant? Or do you hold back from purchasing equipment that you need for business, in case you can’t claim for it? Your contractor accountant will be able to give you advice on what you can and can’t claim. Intouch clients can ask their Personal Accountant about claiming expenses whenever they wish.

The ways in which you can claim for expenses will change in April 2016. Don’t wait until then; download our ebrief to get up to speed now.

HMRC Investigations

Probably one of the scariest things a contractor can face is a dreaded letter from HMRC announcing an investigation! You’re bound to feel some apprehension if you do receive one.

Intouch clients can stay cool as a cucumber, as professional fee protection service is included within their monthly fee. That means that if HMRC do decide to investigate them, they’re covered for up to £75,000 of accountancy fees per claim and don’t have to worry about the time or money it will cost. They simply forward their letter onto their Personal Accountant and they will do the rest! Wondering what the other benefits of fee protection service are and why you need it? Take a look at our blog.

Travel and Subsistence (T&S)

You’re probably going to have to travel to your client’s offices and that costs money. And what about the other possible expenses you’ll incur, like hotel rooms or food? These worries could put you off taking a contract, especially if you think it’s going to cost you an arm and leg.

Don’t panic! Whilst T&S can be a complex area to get your head around, your Personal Accountant will be able to guide you on what you can claim and the best way to do so. Like expenses, the way in which you can claim for T&S will change in April 2016. Take a look at our ebrief to get up to speed with the proposals HMRC are suggesting.

Just Starting Out

Considering contracting or have just started out and worried about what’s lurking behind every corner? We appreciate how daunting it can be when you’re new to the contracting game, but by having the right support behind you it can turn from a nightmare into a dream.

Why not take a look at the Contractor UK Forum, where you can ask other like-minded contractors questions and get a feel for what it’s like when contracting. If there are other topics you’ve heard of and want to find out more, or simply want access to a whole host of contractor resources, take a look around our website for useful videos and blogs.

Don’t let the thought of contracting spook you! Intouch Accounting are here to help you on your journey, by ensuring that you are able to face each challenge confidently and compliantly. Give our team a call on 01202 375 562 to discuss any aspect of contracting and to get you started.

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

The time has come for HMRC to pay attention and change tack

If you work in or with the contracting industry, you won’t have been able to miss the concern and speculation surrounding HMRC’s proposed reforms to the way contractors and freelancers are taxed.

In the months that followed the Chancellor’s announcement that this was to be reviewed in an attempt to ‘level the playing field’ and flush out abuse, the contractor industry has been shouting its concerns from the rooftops.

At the heart of the matter are two key documents; HMRC’s Intermediaries Legislation (IR35) discussion document and the hotly debated Employment Intermediaries and Tax Relief for Travel and Subsistence consultation document.

Last month, the CEO of FSCA, Julia Kermode, wrote a blog post ‘Is HMRC listening?’ in which she strongly set out the flaws in HMRC’s calculations. And she raised a good question, as after reviewing the consultation document it would be easy to worry that the views of genuine and compliant flexible workers expressed during the discussion phase did not get through.

Now the closing date for responding to both documents has passed, HMRC is no doubt head down in a pile of paperwork in which the contractor industry has tried again to get its fears and suggestions heard.

The most advanced of these proposals is the consultation document regarding Employment Intermediaries and Tax Relief for Travel and Subsistence. In it, HMRC sets out its proposal to remove home-to-work travel and subsistence (T&S) tax relief where a worker is employed through an employment intermediary and under the supervision, direction or control (SDC) of any person.

Once proposals such as these reach consultation stage, they are usually a pretty reliable indicator of which direction the reforms will go. Which is why our official response to the document makes no bones about the fact we don’t believe it will deliver on HMRC’s intended aims without unintended and costly consequences.

Having spent a great deal of time speaking to our personal service company (PSC) clients, contributing to industry commentary and working closely with membership and trade bodies such as IPSE and FSCA, we strongly believe that the proposals are disproportionate, over simplified, and will negatively impact the UK’s highly valuable, flexible labour supply market. The end result is likely to add an excessive burden on smaller and medium size businesses.

The Intouch response is clear; the majority of UK contractors wish to be compliant and already ensure they are paying the right amount of tax at the right time. Our fear is that, as the proposal stands, even the most compliant of PSC contractors will end up losing out in one form or another.

We, along with so many others, have real concerns over the proposed options for the ‘transfer of liability’. This is an ill-thought out plan to put the burden of determining tax status onto the engager and is likely to have a number of negative consequences. Not least of these could be the application of risk averse measures by UK plc, resulting in a restricted labour market and causing wider economic consequences.

Another contentious reform is making personal service and the exercise (or right to) SDC the only criteria HMRC will consider when ensuring the appropriate application for the new T&S rules. Under the current application of IR35, a broader range of factors are considered when deciding a contractor’s tax status. I talked about this on the Intouch blog earlier in the summer and will be writing more about our response to the IR35 discussion document next week.

Recruitment website FirstPerson has already warned the proposals could put pressure on rates if workers who fail the SDC test suffer a fall in income.

The crumbling icing on the cake is the suggestion that engagers should, in effect, determine availability of tax relief. Our response outlined a number of concerns with this proposal and these can be viewed in more detail in our IR35 and T&S: Proposed changes ebrief.

The industry forums are awash with speculation over what will happen should the proposed changes be implemented in April 2016. Some contractors fear clients will automatically consider everyone is under SDC in order to safeguard their position or may even refuse to engage them altogether to avoid the risk

Whilst we don’t believe that the reforms outlined in the consultation document have been thought through enough to work, we do agree that something needs to be done to better outlaw false self-employments and the use of abusive models to achieve tax relief where it is not due.

It is time for HMRC and the Chancellor to take heed of industry concerns and be brave enough not just to listen, but to go back to the drawing board and change tack.

If you are unsure where you stand in the debate, or would like to know more about how the proposed changes to tax relief may affect you, our expert contractor accountants can help you. Speak to us today on 01202 375562 or email enquiries@intouchaccounting.com.

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

The proposed changes

Earlier this week saw the closing date for responses to HMRC’s Intermediaries Legislation (IR35) discussion document and the Employment Intermediaries and Tax Relief for Travel and Subsistence consultation document. Intouch Accounting have formally submitted responses to both, championing the voice of contractors. While we fully support fairness and the need to level the playing field, we share concerns of many in the industry that HMRC’s plans are piecemeal and severally flawed. We have put forward our suggestions of what we believe would be better solutions, based on our extensive experience working with contractors. We have also contributed to FCSA’s response. We now await the outcome and expect to hear more in November’s Autumn Statement. We’ll keep you posted as events unfold.

Don’t face HMRC’s changes alone. At Intouch Accounting we work with Limited Company contractors every day so if you’re thinking of starting contracting or want more from your contractor accountant, contact us today.

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.